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PoFA Ch 1
| Term | Definition |
|---|---|
| Accounting | Information and measurement system that identifies, records, and communicates relevant information about a company’s business activities. |
| Recordkeeping | Part of accounting that involves recording transactions and events, either manually or electronically; also called bookkeeping. |
| Financial accounting | Area of accounting aimed mainly at serving external users. |
| Managerial accounting | Area of accounting aimed mainly at serving the decision-making needs of internal users; also called management accounting. |
| External users | Persons using accounting information who are not directly involved in running the organization. |
| Internal users | Persons using accounting information who are directly involved in managing the organization. |
| Data analytics | A process of analyzing data to identify meaningful relations and trends; in accounting, data analytics helps individuals make informed business decisions. |
| Data visualization | A graphical presentation of data to help people understand its significance and draw reliable inferences. |
| Dashboard | Data visualization that includes charts, graphs, and other imaging organized for users to see important trends and relations. |
| Ethics | Codes of conduct by which actions are judged as right or wrong, fair or unfair, honest or dishonest. |
| Internal controls or internal control system | All policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. |
| Generally accepted accounting principles (GAAP) | Rules that specify acceptable accounting practices. |
| Securities and Exchange Commission (SEC) | Federal agency Congress has charged to set reporting rules for organizations that sell ownership shares to the public. |
| International Accounting Standards Board (IASB) | Group that identifies preferred accounting practices and encourages global acceptance; issues |
| International Financial Reporting Standards (IFRS) | Set of international accounting standards explaining how types of transactions and events are reported in financial statements; IFRS are issued by the International Accounting Standards Board. |
| Measurement principle | Principle that prescribes financial statement information, and its underlying transactions and events, be based on relevant measures of valuation; also called the cost principle. |
| Revenue recognition principle | The principle prescribing that revenue is recognized when goods or services are delivered to customers. |
| Expense recognition (or matching) principle | Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses. |
| Full disclosure principle | Principle that prescribes financial statements (including notes) to report all relevant information about an entity’s operations and financial condition. |
| Going-concern assumption | Principle that prescribes financial statements to reflect the assumption that the business will continue operating. |
| Monetary unit assumption | Principle that assumes transactions and events can be expressed in money units. |
| Time period assumption | Assumption that an organization’s activities can be divided into specific time periods such as months, quarters, or years. |
| Business entity assumption | Principle that requires a business to be accounted for separately from its owner(s) and from any other entity. |
| Stock | Equity of a corporation divided into ownership units; also called shares. |
| Shares | Equity of a corporation divided into ownership units; also called stock. |
| Proprietorship | Business owned by one person that is not organized as a corporation; also called sole proprietorship. |
| Shareholders | Owners of a corporation; also called stockholders. |
| Members | Owners of a limited liability company (LLC); rights and responsibilities are specified in the operating agreement and by state LLC regulations. |
| Cost-benefit constraint | The notion that the benefit of a disclosure exceeds the cost of that disclosure. |
| Assets | Resources a business owns or controls that are expected to provide current and future benefits to the business. |
| Liabilities | Creditors’ claims on an organization’s assets; involves a probable future payment of assets, products, or services that a company is obligated to make due to past transactions or events. |
| Equity | Owner’s claim on the assets of a business; equals the residual interest in an entity’s assets after deducting liabilities; also called net assets or owner’s equity. |
| Accounting equation | Equality involving a company’s assets, liabilities, and equity; Assets = Liabilities + Equity; also called balance sheet equation. |
| Expanded accounting equation | Expanded version of: Assets = Liabilities + Equity. For a noncorporation: Equity = Owner’s capital − Owner’s withdrawals + Revenues − Expenses. [For a corporation: Equity = Contributed capital + Retained earnings + Revenues − Expenses − Dividends.] |
| Owner investments | Assets put into the business by the owner |
| External transactions | Exchanges of economic value between one entity and another entity. |
| Internal transactions | Activities within an organization that can affect the accounting equation. |
| Net income | Amount earned after subtracting all expenses necessary for and matched with sales for a period; also called income, profit, or earnings |
| Net loss | Excess of expenses over revenues for a period. |
| Retained earnings | Cumulative income less cumulative losses and dividends. |
| Return on assets (ROA) | Ratio reflecting operating efficiency; defined as net income divided by average total assets for the period; also called return on total assets or return on investment. |
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